Apple Drops to 11-Month Low on Reports of IPhone Cutbacks

An Apple earnings report may show that fiscal first- quarter net income slipped 2% to $12.8 billion, or $13.48 a share, according to analysts’ estimates compiled by Bloomberg. Photographer: SeongJoon Cho/Bloomberg

Jan. 14 (Bloomberg) -- Apple Inc. declined to the lowest
price in 11 months after the Nikkei newswire reported that
production of the iPhone was cut on weak demand.

Apple ordered about half the 65 million iPhone 5 displays
it originally targeted for this quarter, Nikkei said, citing an
unnamed executive at a component maker. Manufacturing curbs have
been widely known since December, according to Steven Milunovich
and Mark Moskowitz, analysts at UBS AG and JPMorgan Chase & Co.,
respectively.

Last month, Apple cut production by about 30 percent, which
may be the result of inventory rebalancing or lower consumer
demand, Milunovich wrote in a research report today. Order cuts
may also be due to suppliers becoming more adept at building the
latest iPhone, reducing the need for Apple to order excess
parts, Moskowitz wrote in a note to clients today.

“The bigger message related to any potential order cuts
could be that iPhone 5 manufacturing yields and thereby gross
margin are on the rebound,” Moskowitz said. He said that his
projection for 25 million iPhone 5 units to be sold in the
quarters ending in December and in March will be exceeded under
the scenario Nikkei reported.

The stock fell 3.6 percent to $501.75 in New York, the
lowest closing price since Feb. 15. Apple extended its decline
to 28 percent since hitting a record high in September.

‘Old News’

“Order cuts appear to be old news,” Milunovich wrote. He
said he reduced his iPhone sales estimates in December after
checks with suppliers indicated a reduction in the number of
phones being made.

IPhone sales could be slowing because smartphones are
already common in developed markets, where Apple is strongest,
said James Cordwell, an analyst at Atlantic Equities Service in
London.

“We’re getting close to saturation,” said Cordwell, who
rates Apple shares “overweight” and doesn’t own any. “The
real growth is going to come from emerging markets, and Apple’s
share in emerging markets is much lower than it is in other
markets at the moment due to such high prices.”

Apple is also facing increasing competition from
manufacturers using Google Inc.’s Android software, including
Samsung Electronics Co. Android phones are gaining users in
emerging markets because they are cheaper than the iPhone.

Increased Competition

Research In Motion Ltd., the maker of the BlackBerry
smartphone, is trading at its highest level in almost a year
amid signs that demand for the iPhone may be waning.

RIM’s stock rose 10 percent to $14.95, following a 14
percent gain on Jan. 11. Shares of the Waterloo, Ontario-based
company have gained 26 percent this year.

“The iPhone is no longer unique, fashion fatigue will
transpire and the rich price premium will be impossible to
sustain,” Per Lindberg, an analyst at ABG Sundal Collier in
London, wrote in a research report today.

First-quarter iPhone shipments may decline 25 percent from
the previous period, Peter Yu, an analyst at BNP Paribas, said
today in a note. Analysts’ average second-quarter revenue
estimate for Apple may drop by about $4 billion to $5 billion
and the earnings-per-share projection may decline by $1 to
$1.50, Abhey Lamba, an analyst at Mizuho Securities USA, said in
a report.

The iPhone may be facing supply chain constraints as Apple
shortens its product cycle to introduce new models more
frequently, Walter Piecyk, an analyst at BTIG LLC, said in an
interview.

“It takes a manufacturer time to do it efficiently,” he
said. “An iPhone sold in the March quarter is more profitable
than an iPhone sold in the December quarter.”